Does it happen or can it happen? a credit crunch in the US economy? market expert José Luis Cava asks himself on his YouTube channel today.
A credit crunch would be a credit crunch caused by a sudden drop in the supply of credit from the banks. This means, the expert explains, that banks suddenly refuse to lend or because the conditions required by banks for lending suddenly tighten.
To assess this situation, it must be taken into account that yesterday the result of a survey was conducted at the credit chiefs of the 70 largest banks in the United States.
The statements of the credit heads of the 3,500 state banks were not taken into account. This is important to consider in order to put the survey results in the right context, says Cava.
First of all, the survey shows that the banks had already begun to tighten lending conditions before the Silicon Valley bankruptcy. We are not witnessing any sudden aggravation.
When respondents are asked whether they will reduce borrowing needs over the course of 2023, the majority say no. And as many as 33%, which is quite a number, believe they will harden the whole year 2023.
If we analyze the relevant section companiesemphasizes Cava, the first thing we see is this Credit has tightened significantlybut what is most striking is that companies are reducing demand for credit.
And if they reduce credit demand, it’s because of that believe that the economic situation or the economic prospects are not favorable in Cava’s opinion.
When we go to individuals, we see that too lending conditions were tightened, but if we look at mortgages, they’ve gotten less tough. “It is clear that the banks want good guarantees.”
Furthermore, if we look at loans to individuals, we observe that the credit flows, “expensive, but credit flows”. So we see that this economic cycle is essentially based on the income of individuals, says Cava.
Banks have tightened lending conditions because The economic prospects are unclear, they foresee a weaker economic outlook. The quality of the collateral for the loans has deteriorated.
Banks also point to lower liquidity and higher borrowing costs forces them to raise prices and thus the demand decreases. Therefore, the question we asked at the beginning can be answered as follows.
The expert points out that in his opinion The US Federal Reserve has wrongly failed to assess the impact that an aggressive rate hike could have on bank liquidity.
On the contrary, if we consider that the Fed took this into account, “what they wanted was cause a liquidity crisis for the banks to reduce the credit they give to corporations and individuals, and that’s how the banks would do the Federal Reserve System’s dirty work,” says Cava.
S&P 500 Analysis
The S&P 500 moved sideways yesterday and was placed above the expert’s bullish guideline, consolidating at the March and April lows. Now, “we’re back in a bullish bias because we think the bulls are in control.” Therefore, the S&P 500 could rally to the 4,200 level.
What speculation system can we use in this environment? With this bullish bias the expert has, you can expect the S&P 500 to fall, goes in the range of 4,130 – 4,120 and then if it jumps above 4,140, the expert would open a small long position, with a stop at 4,113. If 4.113 is drilled, the short side would have to be searched again, the expert said.